Association for Public Policy Analysis & Management

This paper examines how teachers’ unions influence local governments’ allocation of increases in state aid due to school finance reforms. Our identification strategy exploits plausibly exogenous timing of reforms across states, and compares effects in states that mandate collective bargaining to states that do not. In states that mandate collective bargaining, school districts increased education expenditures nearly one-for-one with increases in state aid, and spent the funds primarily on teacher salaries and benefits. In states that do not mandate collective bargaining, districts reduced local taxing effort by about 50 cents for every dollar increase in state aid, and spent the remaining funds primarily on hiring new teachers. While our methodology is similar to recent papers exploiting the plausibly exogenous timing of school finance reforms across states (Jackson et al, 2016; Lafortune et al, 2016), an additional threat to the validity of our analysis is the potential endogeneity of mandatory collective bargaining laws. We show that our results are robust to two alternative identification strategies that address this potential endogeneity: 1) a border discontinuity analysis where we restrict our sample to districts along state borders where one state mandates collective bargaining and the other does not; and 2) propensity score reweighting where districts in states without mandatory collective bargaining laws that are observationally similar to districts in states with the laws receive a larger weight. The robustness of our results to these alternative strategies suggests that we are identifying the effects of the teachers’ unions, and not unobserved differences between the districts in the two types of states. School finance reforms led to some of the largest intergovernmental transfers from states to local school districts in U.S. history, and our results suggest that teachers’ unions had a dramatic impact on both the fraction of these transfers that passed through to education funding and on the allocation of these funds.